Trump’s tar­iffs and in­sults may be part of a strate­gic re­treat.

Investment Executive - - FRONT PAGE - BY GORD MCINTOSH

now that the trump trade tantrums have died down a bit (we hope), it’s time for some dis­pas­sion­ate anal­y­sis.

Let’s be­gin with a ques­tion: “What­ever hap­pened to Mad King Don­ald’s threat to rip up the North Amer­i­can free Trade Agree­ment (NAFTA)?” It has been months since the U.S. pres­i­dent has even al­luded to the pact, let alone threat­ened to rip it up.

Per­haps this is be­cause he knows he could never get the con­gres­sional sup­port nec­es­sary to pull out of NAFTA. And he likely knows that Canada and Mex­ico know this. Which is why the two ami­gos, es­pe­cially Canada, have been sit­ting pat on the more rad­i­cal of the U.S.’s de­mands.

The Cana­dian em­bassy in the U.S. has been lob­by­ing Congress and state leg­is­la­tures for more than a year, and that lob­by­ing ap­pears to have paid off.

Trump’s na­tional se­cu­rity tar­iffs on steel and alu­minum from Canada, Mex­ico and Europe, then his per­sonal at­tack on Justin Trudeau, may be part of a strate­gic re­treat away from the orig­i­nal threat by Trump — and away from his prom­ise to his voter base.

Des­ig­nat­ing a pub­lic bad guy, de­mo­niz­ing that per­son, blam­ing that per­son for what­ever cri­sis you have caused and hop­ing you have thrown your base enough red meat so they’re will­ing to for­get your prom­ises is stan­dard fare in any dem­a­gogue’s play­book.

So far, Ot­tawa hasn’t been will­ing to take Trump’s bait. In fact, For­eign Af­fairs Min­is­ter Chrys­tia Free­land has made an­other trip to Wash­ing­ton, D.C., to ap­pear be­fore the Se­nate For­eign Re­la­tions Com­mit­tee in a sig­nal of “busi­ness as usual.”

By this time, Trudeau prob­a­bly has thought about what be­ing re­garded as an ap­peaser like Neville Cham­ber­lain or a cri­sis leader like Win­ston Churchill would be like. Hence, Trudeau’s now fa­mous state­ment: “Cana­di­ans are po­lite; we’re rea­son­able. But we also will not be pushed around.” He chose Churchill. Then, Trudeau was wise enough to fol­low the age-old po­lit­i­cal ax­iom: “If you can’t im­prove on si­lence, shut the hell up.”

Also wise are Trudeau’s po­lit­i­cal op­po­nents for stand­ing with him — some­thing in sharp con­trast to Trump’s sit­u­a­tion in Wash­ing­ton. Op­po­si­tion to the metal tar­iffs and to Trump’s be­hav­iour is grow­ing among Repub­li­cans.

If Trudeau can stick to his game plan, Trump will get him re-elected in 2019 — just as the FLQ cri­sis of Oc­to­ber 1970 res­cued Pierre Trudeau from plum­met­ing polls.

Trump used Sec­tion 232 of the Trade Ex­pan­sion Act of 1962 to im­pose these tar­iffs un­der the guise of na­tional se­cu­rity. Sec. 232 al­lows the pres­i­dent to by­pass Congress and im­pose tar­iffs by ex­ec­u­tive or­der. So far, 107 Repub­li­cans in Congress have ob­jected.

Congress has only two op­tions against Sec­tion 232: pass an amend­ment tak­ing away the pres­i­dent’s power to by­pass Congress — such a bill has been put for­ward, but is un­likely to pass — or stop the tar­iffs with a veto-proof ma­jor­ity, which re­quires sup­port from two-thirds of Congress.

As the ef­fects of re­tal­ia­tory tar­iffs by trad­ing part­ners af­fect the U.S. econ­omy, the like­li­hood of such a mo­tion will grow, which is why we will see Free­land lob­by­ing in Wash­ing­ton a lot.

Trump also may be head­ing into a con­fronta­tion with the Fed­eral Re­serve Board. So far, the Fed has looked the other way rather than broach the sub­ject of trade wars.

But John Wil­liams, pres­i­dent and CEO of the Fed’s San Fran­cisco branch bank and who is about to take over as head of the Fed’s New York op­er­a­tions, said in April that if trade con­flict in­creases, we can ex­pect less growth, more in­fla­tion and “lower qual­ity of life all over the world.”

If Wil­liams is even half right, the Fed, which op­er­ates au­tonomously, sooner or later will have to ac­knowl­edge the econ­omy is be­ing dam­aged. And if Trump in­ter­feres with the Fed, he could find him­self in a cri­sis he didn’t plan on.

Ul­ti­mately, Canada can’t win a tit-for-tat trade war with Trump. But our gov­ern­ment can wait him out and let the pres­i­dent’s own party rein him in. That’s a dis­tinct pos­si­bil­ity be­fore the U.S. midterm elec­tions in Novem­ber.

Then, there is a grow­ing pos­si­bil­ity of Trump’s im­peach­ment. The rea­sons he has been act­ing er­rat­i­cally, like a des­per­ate man, aren’t dif­fi­cult to un­der­stand. Nei­ther is why Trudeau is re­main­ing calm.

If Trump in­ter­feres with the Fed, he could find him­self in a cri­sis he didn’t plan on

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